Covan, Inc. is expected to have the following free cash flows.

Year	1	2	3	4
FCF	10	12	13	14	grow by 4% per year

a. Covan has

8

million shares outstanding,

$2

million in excess cash, and no debt. If its cost of capital is

11%,

what should its stock price be?b. Covan reinvests all its

FCF.

If you plan to sell Covan at the beginning of year two, what should you expect its price to be? (Note: it has no plans to add debt or change its cash holdings).

c. Assume you bought Covan stock at the beginning of year one. What is your return expected to be from holding Covan stock until the beginning of year two?

a. Covan has

8

million shares outstanding,

$2

million in excess cash, and no debt. If its cost of capital is

11%,

what should its stock price be?The stock price should be

$________.

(Round to the nearest cent.)

b. Covan reinvests all its

FCF.

If you plan to sell Covan at the beginning of year two, what should you expect its price to be? (Note: it has no plans to add debt or change its cash holdings).If you plan to sell Covan at the beginning of year two, its price should be

$_______

(Round to the nearest cent.)

c. Assume you bought Covan stock at the beginning of year one. What is your return expected to be from holding Covan stock until the beginning of year two?

Your expected return from holding Covan stock until the beginning of year two is

________%.

(Round to one decimal place.)